Rosenblum v. Thomson Reuters (Markets) LLC
Filing
27
OPINION AND ORDER re: 19 MOTION to Dismiss the Amended Complaint, filed by Thomson Reuters (Markets) LLC. For the foregoing reasons, Thomson's motion to dismiss for failure to state a claim is denied. The Clerk of the Court is directed to close the instant motion (Docket No. 19). A status conference is scheduled for November 26, 2013 at 4:30 p.m. (Status Conference set for 11/26/2013 at 04:30 PM before Judge Shira A. Scheindlin.) (Signed by Judge Shira A. Scheindlin on 10/25/2013) (ja)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------)(
MARK ROSENBLUM,
Plaintiff,
OPINION AND ORDER
- against13 Civ. 2219 (SAS)
THOMSON REUTERS (MARKETS) LLC,
Defendant.
------------------------------------------------------ -)(
SIDRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
Mark Rosenblum brings this action against his former employer,
Thomson Reuters ("Thomson") for violating Section 21 F of the Securities and
Exchange Act of 1934 (the "34 Act") as amended by The Dodd Frank Act, 15
U.S.C. §78u-6, et seq. ("The Dodd Frank Act" or "DFA"). Rosenblum seeks to
recover damages "as a result of being retaliated against, harassed, and ultimately
terminated as a result of his actions in a 'protected activity' as defined by The
Dodd Frank Act."j Thomson now moves to dismiss the claim pursuant to Federal
Rule of Civil Procedure l2(b)(6) for failure to state a claim. For the reasons stated
below, the motion is denied.
Complaint ("CompI.") ~ 1.
II.
BACKGROUND2
A.
Thomson’s Product
Rosenblum was employed by Thomson from 1998 to 2000 and from
July 2005 until August 2012 as a “Redistribution Specialist” to assist the sales
team in closing redistribution contracts.3 The majority of Rosemblum’s work was
with “Thomson’s financial products to firms that are not directly involved in
managing money i.e., YAHOO, Finance, MSN.com, CNBC, Fox Business.”4 In
January 2012, Rosenblum learned about Thomson’s new product “Thomson
University of Michigan Survey of Consumers” (“the Product”). The Product
“gauges consumers’ attitudes and expectations about the U.S. economy and the
public’s attitude about future changes of economic expectation.”5
The University of Michigan, which compiled the data for the Product,
entered into the following contract allowing Thomson to release the gathered
information in three tiers:
2
The following facts are drawn from the Complaint and are presumed
to be true for the purposes of this motion.
3
See id. ¶¶ 8-10.
4
Id. ¶ 11.
5
Id. ¶ 18.
-2-
It is the understanding of the parties that the Data shall be
released each month as follows:
1. Thomson will send out the Data to Subscribers of its
ultra-low latency distribution platform for purposes of
algorithmic trading at approximately 9:54:58.00 (plus/minus
500 milliseconds).
2. Supplier shall release the certain Data (the “Headline
Numbers”) described in Exhibit_ attached hereto, via a
telephonic conference call in which Subscriber may
participate on or after 9:55:00, except that the monthly
Headline Numbers shall not be disclosed on the conference
call until 9:55:00 or later.
3. Thomson shall have the right to release the Data to its
general Subscribers other than the subscribers in 1 above
(i.e. generally its terminal base subscribers) on or after
9:55:00.
4. The Data shall be released to subscribing re-distributers,
the general public and the website for Supplier and
Thomson respectively at 10:00:00.6
In short, the tiered release of the Data provides a “bimonthly release
of information to ‘ultra low-latency’ subscribers at 2 seconds before 9:55 a.m.
followed by ‘desktop’ subscribers at 9:55 a.m., followed by release to the public at
10:00 a.m.”7
Rosenblum learned that certain Thomson customers were receiving
6
Id. ¶ 24.
7
Id. ¶ 27.
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access to the Product results as early as 9:06 a.m.8 He alleges that the early release
of the Product to certain subscribers gives those subscribers an advantage in
making financial transactions based on the information.9 In May 2012,
Rosenblum formed the belief that the tiered release constituted insider trading.
B.
Reporting the Violation
On May 14, 2012, Richard Curtin, the Product’s author gave a
presentation to Thomson employees. When Rosenblum asked if the tiered release
of the Product results was a Fair Disclosure (Regulation FD) violation,10 Curtin
informed him it was not as the Product was “a private business venture and not
governmental.”11 On May 16, 2012, Rosenblum alerted Marika Vilen, Global
Head of Strategies, of his concerns and was told that it was an issue for the
Thomson desktop sales force, but not for him.12 On June 22, 2012, Rosenblum
went to his supervisor, Rom Ramjug, V.P. of Partnerships, to discuss the situation.
8
See id. ¶ 30.
9
See id. ¶ 31.
10
See 17 C.F.R. § 243.100. Regulation FD prohibits a company from
privately disclosing material nonpublic information regarding the company or its
securities to certain persons such as analysts and institutional investors.
11
Compl. ¶ 34d.
12
See id. ¶ 34f.
-4-
Ramjug told him to “stop trying to figure out what Thomson [was] doing wrong,
and close more business.”13 On June 25, 2012, another senior employee told
Rosenblum “you are not doing yourself any favors by chasing down who is getting
the numbers ahead of time – this will affect Nick’s profits, and your bonus.”14
On June 29, 2013, Rosenblum called the FBI to inform them of the
early release of the Product results to certain consumers at 9:54:59 a.m. and also
sent an email to Thomson’s Ethics Committee.15 That same day, Rosenblum
informed Thomson that he had alerted the FBI. Between June 29, 2012 and
August 3, 2012, Rosenblum spoke with his supervisors at Thomson as well as with
the FBI about his conclusion that the early disclosure of the Product results
violated Section 10b-5 of the 34 Act and Regulation NMS, “which regulates how
companies, such as Thomson, share information with the public and is meant to
ensure equal access to that information.”16 Rosenblum asserts that his reports to
the FBI constituted a protected act under the DFA.
C.
Rosenblum Terminated After Reporting the Violation
13
Id. ¶ 34i.
14
Id. ¶ 34j.
15
See id. ¶¶ 34l-34m.
16
Id. ¶¶ 37-38
-5-
On August 3, 2012, weeks after Rosenblum complained to his
superiors and alerted the FBI, he was terminated from his position with no
severance pay and without compensation for his accrued vacation days.17
Rosenblum maintains that before reporting the alleged violation, his job
performance reviews were always exceptional and that he routinely received
bonuses exceeding $100,000 per year.18
Although Thomson maintains that Rosenblum was fired based on his
improper attempts at gaining commissions on sales contracts to which he was not
entitled, Rosenblum believes he was terminated because of his reports to the FBI
and Thomson’s Ethics Board.19 Rosenblum argues that the reasons given by
Thomson for his termination are pretextual and issues that Rosenblum himself
previously brought to the attention of his supervisors, but that they had dismissed
as not problematic.20 Because he reported the alleged violation to the FBI and
internally at Thomson, Rosenblum argues he is a whitleblower within the
definition of 15 U.S.C. § 78u and that his disclosures were a “protected activity”
17
See id. ¶ 40.
18
See id. ¶ 41.
19
See id. ¶¶ 42-43.
20
See id. ¶¶ 46-49.
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under 15 U.S.C. § 784-6(h)(i)(A)(iii).
On April 4, 2013, Rosenblum filed the instant action. On August 20,
2013, upon retaining new counsel, Rosenblum filed an amended complaint.
Rosenblum states that as a result of his unlawful termination, he has suffered “the
loss of a career, and the loss of twice his salary, bonuses, benefits, and other
compensation which employment entails, and Plaintiff has also suffered future
pecuniary losses, emotional pain, physical pain and suffering, inconvenience,
injury to his reputation, loss of enjoyment of life, and other non-pecuniary
losses.”21
III.
APPLICABLE LAW
A.
Rule 12(b)(6) - Failure to State a Claim
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court
“must accept all non-conclusory factual allegations as true and draw all reasonable
inferences in the plaintiff’s favor.”22 The court then “determine[s] whether [those
allegations] plausibly give rise to an entitlement for relief.”23 “Threadbare recitals
21
Id. ¶ 61.
22
Simms v. City of New York, 480 Fed. App’x 627, 629 (2d Cir. 2012)
(citing Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008)).
23
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Accord Kiobel v. Royal
Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010), aff’d, 133 S.Ct. 1659
-7-
of the elements of a cause of action, supported by mere conclusory statements, do
not suffice” to withstand a motion to dismiss.24 The court then “determine[s]
whether [those allegations] plausibly give rise to an entitlement for relief.”25 A
claim should not be dismissed if the plaintiff has stated facts sufficient to state a
claim to relief that is plausible on its face.26 “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”27 Plausibility “is
not akin to a probability requirement;” rather, plausibility requires “more than a
sheer possibility that a defendant has acted unlawfully.”28
“In considering a motion to dismiss for failure to state a claim
pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the
complaint, documents attached to the complaint as exhibits, and documents
(2013).
24
Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)).
25
Id. at 679. Accord Kiobel, 621 F.3d at 124.
26
See Simms, 480 Fed. App’x at 629 (citing Iqbal, 556 U.S. at 677).
27
Iqbal, 556 U.S. at 678.
28
Id. (quotation marks omitted).
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incorporated by reference in the complaint.”29 However, a court may also consider
a document, not incorporated by reference, “where the complaint ‘relies heavily
upon its terms and effect,’ thereby rendering the document ‘integral’ to the
complaint.”30
IV.
DISCUSSION
Thomson contends that Rosenblum is not covered under the Securities
Whistleblower Incentives and Protection provisions of the DFA because he never
contacted the SEC to report Thomson’s alleged misconduct. The DFA provides
the following protection against whistleblower retaliation:
No employer may discharge, demote, suspend, threaten,
harass, directly or indirectly, or in any other manner
discriminate against, a whistleblower in the terms and
conditions of employment because of any lawful act done
by the whistleblower-(i) in providing information to the Commission in
accordance with this section;
(ii) in initiating, testifying in, or assisting in any
investigation or judicial or administrative action of the
Commission based upon or related to such information; or
(iii) in making disclosures that are required or protected
under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et
29
DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010)
(citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).
30
Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.
2006)). Accord Global Network Commc’ns, Inc. v. City of N.Y., 458 F.3d 150, 156
(2d Cir. 2006).
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seq.), this chapter, including section 78j-1(m) of this title,
section 1513(e) of Title 18, and any other law, rule, or
regulation subject to the jurisdiction of the Commission.31
The DFA defines a whistleblower as “any individual who provides, or 2 or more
individuals acting jointly who provide, information relating to a violation of the
securities laws to the Commission, in a manner established, by rule or regulation,
by the Commission.”’32 Rosenblum and Thomson disagree about how to reconcile
the DFA’s definition of “whistleblower” with the DFA’s retaliation provision.
More specifically, the question is whether disclosure to the SEC is required in
order to qualify for the anti-retaliation protection of the DFA.
A.
Statutory Interpretation of the DFA Shows Ambiguity
In 2011, the SEC formally adopted a rule to provide clarity as to the
interplay between the DFA’s definition of whistleblower and the anti-retaliation
provision:
For purposes of the anti-retaliation protections afforded by
Section 21F(h)(1) of the Exchange Act (15 U.S.C. §
78u–6(h)(1)), you are a whistleblower if:
(i) You possess a reasonable belief that the information you
are providing relates to a possible securities law violation
(or, where applicable, to a possible violation of the
31
15 U.S.C. § 78u–6(h)(1)(A).
32
Id. § 78u–6(a)(6).
-10-
provisions set forth in 18 U.S.C. §1514A(a)) that has
occurred, is ongoing, or is about to occur, and;
(ii) You provide that information in a manner described in
Section 21F(h)(1)(A) of the Exchange Act (15 U.S.C. §
78u–6(h)(1)(A)).
(iii) The anti-retaliation protections apply whether or not
you satisfy the requirements, procedures and conditions to
qualify for an award.33
To determine whether the SEC’s interpretation of a statute warrants
deference, a court applies the two-step process of statutory interpretation
established by Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.34
The first step inquires “whether Congress has directly spoken to the precise
question at issue. If the intent of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the unambiguously expressed
intent of Congress.”35 However, if “the statute is silent or ambiguous with respect
to the specific issue,” the court applies step two – “whether the agency’s answer is
based on a permissible construction of the statute.”36 “If the agency interpretation
is reasonable, then [a court] must defer to it.”37
33
17 C.F.R. § 240.21F-2.
34
467 U.S. 837 (1984).
35
Id. at 842-43.
36
Id. at 843.
37
Kar Onn Lee v. Holder, 701 F.3d 931, 936 (2d Cir. 2012)
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Thomson contends that because neither the Second Circuit nor the
Supreme Court have addressed the precise issue presented here, this Court should
follow the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), L.L.C.38 In
Asadi, plaintiff charged his former employer with violating the DFA by firing him
in retaliation for internally reporting a possible violation of the securities laws.39
Asadi informed his supervisor and his company’s regional ombudsperson of the
suspected violation.40 The Court held that Asadi was not a whistleblower under the
DFA because he did not report the possible violation to the SEC.41 The Court
declined to give deference to the 2011 SEC rule, as it determined that Congress’s
intention to limit whistleblower protection to those who reported the violation to
the SEC was unambiguous. Thomson argues that for the reasons articulated in
Asadi, Rosenblum is not entitled to relief because the plain text of the statute
requires that a whistleblower report a suspected violation to the SEC in order to
obtain protection against retaliation under the Act. Rosenblum, in turn, argues that
38
720 F.3d 620 (5th Cir. 2013).
39
See id. at 621.
40
See id.
41
See id. at 629.
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several recent district court decisions, including some within the Second Circuit,42
have found that Congress did not intend such a narrow interpretation of the DFA.43
When considering the DFA as a whole, it is plain that a narrow
reading of the statute requiring a report to the SEC conflicts with the antiretaliation provision, which does not have such a requirement. Thus, the governing
statute is ambiguous.44 As a result, it is appropriate to consider the SEC’s
interpretation of the statute.45
In its comments to the rule, the SEC explained further that
‘[t]he second prong of the Rule 21F–2(b) (1) standard
provides that, for purposes of the anti-retaliation
protections, an individual must provide the information in
a manner described in Section 21F(h)(1)(A). This change
42
See, e.g., Murray v. UBS Secs., LLC, No. 12 Civ. 5914, 2013 WL
2190084, at *7 (S.D.N.Y., May 21, 2013), Kramer v. Trans–Lux Corp., No. 11
Civ. 1424, 2012 WL 4444820, at *3 (D. Conn. Sept. 25, 2012); Egan v.
Tradingscreen, Inc., No. 10 Civ. 8202, 2011 WL 1672066, at *3 (S.D.N.Y. May 4,
2011). It should be noted that each of these cases were decided before Asadi.
43
See Ellington v. Giacoumakis, No. 13 Civ. 11791, 2013 WL 5631046,
at *3 (D. Mass. Oct. 16, 2013), which declined to give deference to Asadi’s
statutory interpretation, stating “[t]his court respectfully disagrees and instead
adopts the SEC’s interpretation of the relevant provisions of Dodd–Frank.”
44
See Virgilio v. City of New York, 407 F.3d 105, 112 (2d Cir. 2005)
(quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997)) (“‘The plainness or
ambiguity of statutory language is determined by reference to the language itself,
the specific context in which that language is used, and the broader context of the
statute as a whole.’”).
45
See Ellington, 2013 WL 5631046, at *4.
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to the rule reflects the fact that the statutory anti-retaliation
protections apply to three different categories of
whistleblowers, and the third category includes individuals
who report to persons or governmental authorities other
than the Commission.’46
Therefore, the 2011 rule promulgated by the SEC, which was given authority by
Congress to implement the DFA, does not require a report to the SEC in order to
obtain whistleblower protection.
B.
Applicability of the Sarbanes–Oxley Act (“SOX”)
To obtain relief under the SEC’s rule “the anti-retaliation
whistleblower protection provisions of Dodd–Frank require Plaintiff to show that
he either provided information to the SEC or that his disclosures fell under the four
categories listed in Section 78u–6(h)(1)(A)(iii).”47 The SOX provides
whistleblower protection for employees of publicly traded companies if
any officer, employee, subcontractor, or agent . . .
discharge[s], . . . threaten[s], [or] harass [es], . . . an
employee in the terms and conditions of employment
because of any lawful act done by the employee—
(1) to provide information, cause information to be
provided, or otherwise assist in an investigation regarding
any conduct which the employee reasonably believes
46
Murray, 2013 WL 2190084, at *3 (quoting SEC Securities
Whistleblower Incentives and Protections, 76 Fed. Reg. 34300–01, at *34304,
2011 WL 2293084 (2011) (“Comments to Final Rule”)).
47
Id. at *7.
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constitutes a violation of any rule or regulation of the
Securities and Exchange Commission, or any provision of
Federal law relating to fraud against shareholders, when the
information or assistance is provided to or the investigation
is conducted by—
(A) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of
Congress; or
(C) a person with supervisory authority over the employee
(or such other person working for the employer who has the
authority to investigate, discover, or terminate misconduct).
. . .48
Rosenblum has alleged that he reported the violation to both the FBI and internally
to his supervisors. At this stage, Rosenblum has adequately alleged that
Thomson’s decision to terminate him was motivated, in part, by reporting the
alleged violations that are protected by Section 806 of the SOX, and has thus
plausibly stated a claim under Section 78u–6(h)(1)(A)(iii). Accordingly,
Thomson’s motion to dismiss is denied.
C.
Punitive Damages
Finally, Thomson argues that even if its motion to dismiss is denied,
Rosenblum is not entitled to punitive damages under the DFA. The DFA provides
the following relief under the retaliation provision: “reinstatement;” “2 times the
amount of back pay otherwise owed to the individual, with interest;” and
48
18 U.S.C. § 1514A.
-15-
“compensation for litigation costs, expert witness fees, and reasonable attorneys’
fees.”49 Thomson contends that Rosenblum is precluded from recovering punitive
damages because the DFA’s anti-retaliation provision does not provide for such
relief.
When interpreting other statutes, courts have found that punitive
damages are available even when not explicitly provided for in the statute.
However, those statutes provided for ‘special damages’ or ‘legal relief that the
Court deems appropriate,’ which courts construed to include punitive damages.50
49
15 U.S.C. § 78u–6(h)(1)(C).
50
See Sines v. Service Corp. Intern., No. 03 Civ. 5465, 2006 WL
3247663, at *2 (S.D.N.Y. Nov. 8, 2006) (holding that the Fair Labor Standards Act
permits recovery of punitive damages in anti-retaliation actions even though it is
not specifically authorized because the statute was amended to permit recovery of
any “such legal or equitable relief as may be appropriate, including without
limitation employment reinstatement or promotion and the payment of wages lost
and an additional amount of liquidated damages.” The court held that “such legal
or equitable relief . . .without limitation” indicated Congress’s intent to allow a
panoply of remedies, including punitive damages). See also Yu G. Ke v. Saigon
Grill, Inc., 595 F. Supp. 2d 240, 264 (S.D.N.Y. 2008) (“[A] plaintiff who prevails
under the anti-retaliation provision of the FLSA may be awarded ‘such legal or
equitable relief as may be appropriate . . . including without limitation
employment, reinstatement, promotion, and the payment of wages lost and an
additional equal amount as liquidated damage’, 29 U.S.C. § 216(b), and possibly
punitive damages.”). Cf. Edwards v. Brookhaven Science Associates, LLC, 390 F.
Supp. 2d 225 (E.D.N.Y. 2005) (stating that punitive damages are available for
retaliation claims under the Americans with Disabilities Act because that Act
incorporates remedies available under Title VII, even though the Title VII
provision is ambiguous as to whether it applies to other statutes).
-16-
Because the DFA neither provides for punitive damages nor permits
broader relief, Rosenblum’s claim for such damages is dismissed.51
V.
CONCLUSION
For the foregoing reasons, Thomson’s motion to dismiss for failure to
state a claim is denied. The Clerk of the Court is directed to close the instant
motion (Docket No. 19). A status conference is scheduled for November 26, 2013
at 4:30 p.m.
51
See Kramer, 2012 WL 4444820, at*7 (“The Dodd–Frank Act
provides that relief under the retaliation provision includes ‘reinstatement;’ ‘2
times the amount of back pay otherwise owed to the individual, with interest;’ and
‘compensation for litigation costs, expert witness fees, and reasonable attorneys’
fees.’ 15 U.S.C. § 78u–6(h)(1)(C). Kramer will be limited to that relief, and the
motion to strike is granted to the extent it sought to limit Kramer’s prayer for relief
to damages permitted by ERISA and the Dodd Frank Act.”). See Also William E.
Hartsfield, 2 Investig. Employee Conduct, § 12:35 (“Dodd-Frank Wall Street
Reform and Consumer Protection Act”) (2001, revised Aug. 2013) (“DFA does not
provide for recovery of punitive damages.”); Duane Morris LLP, Alerts, SEC
Adopts Final Rules on Dodd-Frank Whistleblower Program (Jun. 8, 2011),
available at http://www.duanemorris.come/alerts/SEC_DoddFrank_whistleblower_rules_4100.html (. . . . Sarbanes-Oxley, like Dodd-Frank,
does not provide for punitive damages.”).
-17-
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V.S.DJ.
Dated: New York, New York
October 25,2013
-18
- Appearances For Plaintiff:
Eric L. Young, Esq.
Young Law Group, P.C.
123 S. Broad Street, Suite 1920
Philadelphia, PA 19109
(215) 367-5151
Edward J. Kennedy, Esq.
Phillips & Associates, PLLC
30 Broad Street
35th Street
New York, NY 10004
(212) 248-7431
James J. McEldrew, III, Esq.
McEldrew Law
123 South Broad Street, Suite 2135
Philadelphia, PA 19109
(215) 545-8800
For Defendant:
Glenn C. Edwards, Esq.
Justin E. Klein, Esq.
James F. Rittinger, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
(212) 818-9200
-19-
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